Can I Keep my Tax Refund in Chapter 13 Bankruptcy? | Portland, OR

Can I Keep my Tax Refund in Chapter 13 Bankruptcy?


Bankruptcy Attorney in Oregon (Portland, Bend, and Clackamas)

When you file bankruptcy under Chapter 13, keeping your tax refund depends on your repayment plan as well as the total amount you will repay your creditors. If you face an unanticipated difficulty, you can petition the court to change your plan in Chapter 13 and exempt the payment of your tax refund.

Find out if you can keep your tax refund in Chapter 13 bankruptcy, if you qualify under Chapter 13, as well as what can be expected under Chapter 13 by consulting Michael D. O’Brien & Associates, P.C., a bankruptcy attorney in Oregon.

Michael D. O’Brien & Associates, P.C. has been providing affordable legal help in bankruptcy protection and asset protection strategies to people and families in Portland, Bend, Clackamas, Tigard, and surrounding Oregon communities for more than 20 years. We are Portland bankruptcy attorneys servicing the counties of Washington, Multnomah, and Clackamas. Our Bend, Oregon locations serve our Central Oregon friends. 

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Can I Keep my Tax Refund in Chapter 13 Bankruptcy?

 can I keep my tax refund in chapter 13 bankruptcyTurning over your tax refund will depend on your particular situation. You should prepare to give your tax return to your court-appointed trustee in bankruptcy each year in order to pay your creditors since, under Chapter 13, creditors have the right to all surplus money called “disposable income.”

But, depending on the terms of your payment plan, your bankruptcy trustee, and the amount of debt you are paying, you may be allowed to keep your tax refund under the following conditions:

  • Keeping your refund is part of your debt repayment plan
  • You are qualified to “excuse” a turnover of your tax refund.
  • You are paying a minimum of 70% of your unsecured debts,
  • You’re following a “100% plan” to pay off unsecured debts.

If you are unsure about what your repayment plan entails, your best move is to consult with a bankruptcy attorney in Oregon.

How to Get a Tax Refund Excused in Chapter 13 Bankruptcies

If you are expected to pay your tax return, you may request to have your responsibility excused by the bankruptcy court by filing for a Chapter thirteen payment plan modification. Each year, you need to submit a new separate plan modification which includes:

  • the income tax refund you would want to keep,
  • your tax refund amount,
  • the financial problems you are experiencing.

Bankruptcy courts will usually excuse a tax refund turnover if it is needed and unexpected. If you want to buy food, pay for your car, or do anything else listed on your initial Schedule J: Your Expenses it’s doubtful that it will be granted unless there are other undue hardship factors.

For example, Alison pays the trustee $1,000 every month. Her monthly earnings from employment barely meet both plan payments and expenses, and she slips further behind every month. She would need her tax refund in paying off her utility bills. Alison’s tax bill may be excused if she can prove to the court that her expenditure grew because of inflation or some other event outside her control, and not due to a failure in planning. 

The bankruptcy court also may let her keep her tax refund in the event that she has to pay any of those listed below:

  • a replacement vehicle or car repairs
  • unexpected dental or medical bills
  • a new appliance or
  • funeral expenses.

If you gain court approval to keep your return, keep receipts to document your expenses. If you are unable to fulfill your Chapter 13 plan payments, speak with a bankruptcy lawyer to know what your options are.

You May Probably Keep Your Tax Refund if Your Chapter 13 Payment Plan is a “100% Plan” or Near to It

If your Chapter thirteen plan does not say that you must surrender your tax refund, find out the amount your creditors are paid by your plan. If you pay all of your debt or are close to doing so, you may not have to pay-back your refund.

For example, if you pay a minimum of 70% of your “unsecured debt,” you probably won’t have to surrender your return, and you shouldn’t have to if you pay 100% of your unsecured debt in a “100% plan” (as opposed to 0 percent in a “0 percent plan”).

How Can I Know What My Percentage Is for My Chapter 13 Plan?

Deduct any “secured debts” such as mortgage and car payments from your plan payment. Secured debts are backed by collateral that the lender can take from you if you do not pay the required payments. After you have completed your calculations, the leftover amount will be used to pay down your unsecured debt, like credit card balances, late lease payments, medical bills, and utility arrearages. Calculate the percentage you need to pay your unsecured creditors.

Who is paying 70% to 100% of Chapter 13 Plan payments?

One of the good things about Chapter 13 is that most plans pay a small amount toward unsecured debt. However, if you fall into any of these 2 groups, you will most certainly pay a more significant percentage:

  1. You make a lot of money and you have a low amount of debt. If two filers owe $100,000 and claim the same amount of monthly expenses. But once expenses are taken into account, filer A has $75,000 left over to pay an unsecured debt, while filer B has only $7,000. In this case, filer A will pay to a 75% plan, whereas filer B will contribute to a 7% plan.
  2. You have valuable property that bankruptcy exemptions do not protect. If your credit card company has a $45,000 money judgment against you and intends to take away your $450,000 vacation condo. You apply for Chapter 13 to block the seizure, but since you don’t have a bankruptcy exemption to protect the apartment, you need to pay unsecured creditors $450,000 or the $45,000 you owed, whatever is less. In a 100% plan, you make five-year payments of $45,000 and retain ownership of the condo.

Requirements for Chapter 13 Tax Returns

You are accountable for timely filing all federal, state, and local tax returns both before and after your Chapter 13 bankruptcy petition has been filed. Your tax returns will not be completed or filed for you by the Chapter 13 Trustee. The Chapter 13 Trustee may regularly ask for copies of your federal, state, and local tax returns throughout your plan’s term. When the Trustee asks for certain documents, it is your duty to provide them. Get in touch with your bankruptcy lawyer if you run into problems filing your tax returns.

Possible Ways that a Tax Refund Can Be Kept in Chapter 13

Your trustee might let you keep your tax refund because deciding what to do with it is mostly discretion. A debtor might, for instance, require auto repairs or a new car at some point in the repayment schedule.

Nonetheless, in most bankruptcy cases, the trustee will require you to surrender your tax refund toward your Chapter 13 plan. Practically, the only preventive option available under Chapter 13 is to change your employment tax withholding so that your tax refund is reduced. With a lesser refund, the trustee will have less of your money to take. 

However, it’s better to do this ahead of filing for bankruptcy under Chapter 13. You wouldn’t want it to be perceived in the future as an effort to conceal bankruptcy income due to your creditors.

Taxes and Bankruptcy Help in Oregon

Chapter 13 bankruptcy taxes and regulations are quite specific and difficult to navigate if you are unfamiliar with this area of law. If you are thinking of filing bankruptcy under Chapter 13 in Oregon, consult with a local attorney who has a good reputation for helping others in your situation. 

Asking for advice shouldn’t be avoided because the longer you wait, the more probable it is that your debts will increase. It can be stressful to consider Chapter 13 or Chapter 7 bankruptcy, but for certain individuals and families, it may be the best course of action.

Call the team at the Law Office of Michael D. O’Brien & Associates, P.C. immediately for a free consultation about all types of bankruptcy and how to file for bankruptcy in Oregon.

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FACING COMPLEX DEBT PROBLEMS?

Whether you're dealing with overwhelming debt, stopping foreclosure or repossession proceedings, or looking for a way to protect your assets, our Portland bankruptcy attorneys are here to help you overcome your financial hurdles!

Please be aware that submission of this no-obligation form does not establish an attorney-client relationship. By filling out the form, you agree to receiving emails from our firm regarding your case evaluation and other helpful resources.